US-based Archer Daniels Midland has clinched a deal to acquire Swiss-German processor of natural ingredient Wild Flavors for 2.3 billion euros or $3 billion to make headway into the flavoring and health conscious markets.
ADM, which is one of the world’s most dominant grain traders and a big processor of food, said today it would set up a new venture called Wild Flavors and Specialty Ingredients. It’s expected to finalize the acquisition by the end of the year, the firm said.
Wild Flavors, which is ADM’s maiden entry the flavors sector, focuses on natural ingredients. The deal that ADM terms as its biggest ever is being finalized at a time when consumers have shown surging demand for food made of only organic ingredients.
A source familiar with the developments said that private equity group KKR, which acquired 35% stake in Wild in 2010, has since tripled its interests.
Reuters learnt in May that the Illinois-based agribusiness was among private equity and strategic suitors for Wild Flavors, which according to sources, anticipates almost 140 million euros in 2014 core earnings.
The deal, which takes into account about 100 million euros of net debt, puts Wild Flavors value at a massive multiple of 16.4 times its key earnings, compared with a multiple of 11 worked out in peers. ADM plans to cut costs by up to 100 million euros by the third year of the purchase.
“I think it will be very difficult for them to extract value at such a high valuation. It’s an ambitious target in terms of synergies,” Berenberg analyst Evgenia Molotova is quoted by Reuters as saying.
According to the New York Times, the acquisition is too small to change investors’ perception of ADM, despite the synergies created. The firm strategy aims at diversifying away from unstable commodity businesses as it embraces higher-margin products.
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